The recording process and accounting equation

The recording process and accounting equation

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The recording process in accounting is whereby; transactions are entered in the general journal and are posted into the correct general ledger. It always tries to match the revenues with expenses incurred during a transaction . For example when one uses their credit card, even in a situation where they have not paid cash yet, one still received value and still owes money. For this one will have to record an asset which in this case is something that cost money that will aid in the business and a liability which means the business owes something. All transactions that concern a business are recorded. It is identified as to relate to a business entity.

The accounting equation is also known as the balance sheet equation. It stands for relationship between the assets, liabilities and the owner’s equity of a business. It forms the foundation of double entry accounting . It shows that all the assets are either financed by borrowing money or paying with the money of the company’s shareholders. It comes as a result of adding liabilities and equity in order to get assets. For example, when someone buys assets, they either had to pay for them by themselves with what they put into the business or reinvested into the business; equity, or what they borrowed which in this case are the liabilities.

The area that might be a challenge here is how to calculate the asset value that is bought in to the company that needs to be paid for. The accounting is normally difficult to put into practice in real life but one eventually gets a hang on it. Another challenge is learning the recording process. It is a tedious exercise since every transaction has to be put in record.

References

Kieso, D. W. (2012). Study Guide to Accompany Financial Accounting. London: Oxford University Press.

Warren, C. S. (2015). Accounting. Chicago: Andrew Johnson.